LIVE MARKETS-AI boom or bust? The uncertain dance of markets

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AI BOOM OR BUST? THE UNCERTAIN DANCE OF MARKETS

2025 has been a year where investors have struggled to decide if they're betting on yet another market bubble or overwhelming returns from artificial intelligence, against a host of unfavorable factors.

A BofA investor survey has reflected the peaks and troughs of that uncertainty and in November it showed that 33% of fund managers wanted companies to use their cash to improve balance sheets, while 29% wanted them to increase capital spending - not a whole lot different from the end of last year.

But the environment is slightly different this time.

Two big investors Japan's SoftBank 9984.T and tech billionaire Peter Thiel's hedge fund trimmed their stakes in AI poster child Nvidia NVDA.O, while 'Big Short' investor Michael Burry took a bearish position on the chip designer earlier this month and also accused major hyperscalers of being involved in a sort of depreciation fraud.

BofA said that a majority of investors now think that companies are overinvesting - a first since August 2005. Much of it they say was driven by CapEx spending on AI and a small number expect productivity gains only in 2026 or afterward.

But it's not just that companies are spending on artificial intelligence but that they are using debt and investing in each other, making it a risk to transparency and difficult for investors to accurately forecast earnings.

"Concerns are mounting around how CapEx is financed and, importantly, what the return on investment will look like," said Johanna Kyrklund, Group Chief Investment Officer at Schroders.

"This is why it's critical to own stocks backed by deep fundamental analysis - not just because they’re part of an index."

It's not looking all that bright on the macro front either.

A host of companies just announced a wave of layoffs, official U.S. data is scant, and the U.S. cut tariffs on a number of grocery items, indicating price pressures are heating up, which leaves Fed policymakers in a bit of a pickle when they try to frame their verdict on monetary policy in December.

It is against this backdrop that Nvidia will announce its results on Wednesday. Notwithstanding how markets will react post the results, it is likely that occasional jitters are here to stay until traders are convinced that they have got their bang for their buck.

(Johann M Cherian, Rashika Singh)

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